Is Cyber Insurance Right for Your Business?

by | Feb 9, 2024

As businesses increasingly rely on digital technologies, the risk of cyber threats looms larger. That’s why the cyber insurance market is expected to double by 2025, reaching a market size of $22 billion. This type of insurance is designed to offer financial protection against the consequences of incidents like cyberattacks and data breaches. Many businesses are still wondering, though: is cyber insurance the right choice? Considering the monthly cost involved, it isn’t an easy answer for some.

What Is Cyber Insurance?

Cyber insurance is a type of policy designed to assist financially recovering from a cyberattack or other type of cyber incident. As companies become more dependent on technology, the significance of this insurance has grown in parallel to cyber threats. Businesses that depend on digital systems for their operations and those managing sensitive information can greatly benefit from the added protection.

First-Party vs. Third-Party Liability Coverage

With cyber insurance, there are two main types of liability coverage: first-party and third-party. They focus on protecting different aspects of a business from digital threats. While many policies provide both types, some companies only need one or the other. Here’s a breakdown of each type:

First-Party Coverage

First-party cyber insurance coverage protects the insured business from direct losses caused by a cyber incident. That includes the business’s financial losses due to the impact on data, operations, and infrastructure. Key components often include:

  • Data Breach Response: Costs associated with responding to a data breach, such as forensic analysis, notifying affected individuals, and offering credit monitoring services.
  • Business Interruption: Payment for lost income and increased costs of operation or downtime while the business’s digital systems are impacted.
  • Bricking: Computers that become unusable, also known as bricking, due to a malware attack would be fully replaced.
  • Cyber Ransom: Coverage for ransom demands by cybercriminals threatening to harm releasing sensitive data or launching another attack.
  • Data Restoration: Expenses related to recovering or restoring data and software that’s impacted by a cyber incident.

Third-Party Coverage

Third-party cyber insurance coverage, on the other hand, is focused on external liabilities. This type of coverage is essential for businesses that could be held responsible for cyber incidents that affect clients, partners, or other third parties. Components often include:

  • Legal Defense and Settlements: Costs associated with defending against lawsuits or legal claims due to a cyber incident, along with any settlements or judgments.
  • Regulatory Fines and Penalties: Coverage for fines and penalties imposed after a cyberattack, particularly in cases of non-compliance with data protection laws.
  • Notification Expenses: Although part of first-party coverage for the insured’s breach response, this can also extend to third-party costs when the insured manages a breach affecting another entity’s data.

Businesses must consider their risks, liabilities, and budget to choose the right mix of first-party and third-party cyber insurance coverage. 

What Does a Cyber Insurance Policy Not Cover?

While cyber insurance can provide critical support during a cybersecurity incident, there are limitations to many policies. Understanding these exclusions is key to choosing the right coverage, as it may have to be combined with a non-cyber plan to protect a business fully.

  • Human Error: Mistakes made by individuals or businesses typically aren’t covered if they fall outside of the terms of the policy.
  • Non-Compliance: Most policies require standard cybersecurity, such as multi-factor authentication (MFA), an incident response plan, and routine risk assessments. Not complying can invalidate the protection.
  • Insider Attacks: Actions taken maliciously by business owners or employees, such as data theft or sabotage, are not covered.
  • Reputation Damage: While business interruption coverage can compensate for income lost during a downtime immediately following a cyber event, future losses from factors like reputational damage are generally not covered.
  • System Upgrades: Costs associated with upgrading IT systems, software updates, or security measures to better protect against future attacks are typically not covered. These are considered preventative rather than a direct result of an incident.
  • Intellectual Property Theft: Losses related to intellectual property theft, such as trade secrets or patents, may not be covered or could have limited coverage under a standard cyber insurance policy.

It’s crucial for businesses to carefully review the specifics of their cyber insurance policies and work with their insurers to understand the full scope of coverage. That includes understanding potential gaps that may require additional policies or risk management strategies.

How Much Does Cyber Insurance Cost?

For a small business, the cost of cyber insurance can be as low as $50 to well over $400 monthly. The average cost is around $145 monthly. For larger organizations, the amount can be substantially higher. Since there are a lot of variances in price, it’s essential to get quotes from multiple cyber insurance providers to get a more accurate range.

Several factors, including the size and type of business, industry, level of coverage, and the overall risk profile, determine the cost of a plan estimate. Generally, cyber insurance premiums are calculated based on the perceived chance of a cyber incident occurring and the potential financial impact it could have on the company.

How To Decide if Your Business Needs Cyber Insurance

To help decide if your business needs cyber insurance, consider the role of technology in your day-to-day activities. Cyber insurance is designed to protect the digital side of a business, meaning how much it helps organizations depends on the way they operate. To help determine that, we’ve created a list of questions to consider:

    1. Does your business store any form of customer data digitally?
    2. Would a day without access to your digital systems cause significant operational disruptions?
    3. Have you ever dealt with a computer virus, phishing scam, or other cyber threats?
    4. Does the idea of covering the costs for an out-of-pocket data breach concern you?
    5. Would your business benefit from expert support after a cyber incident?
    6. Are you unsure about the effectiveness of your current cyber defense strategies?
    7. Would facing legal action due to a data breach significantly strain your resources?
    8. Are you required to follow specific regulations regarding data security in your industry?
    9. Could your business’s reputation suffer from customers discovering a data breach?
    10. Would cyber insurance help fill gaps not covered by your existing cybersecurity?

If your answer to most of the above questions is “yes,” cyber insurance may be a good fit for your business. Its greatest strength is being able to help mitigate the costs of a wide range of cyber incidents, making unexpected disasters much less of a burden.

Picking the right cyber insurance policy comes down to comparing different plans and multiple providers to see what’s the best fit. That is best done in coordination with your IT team, who will be less biased than the cyber insurance company, whose primary goal is to sell their product. If you don’t have an experienced IT partner, many MSPs offer IT consulting services where they can provide insight into cyber insurance.

Cyber Insurance: More Than Peace of Mind

Cyber insurance isn’t meant just to provide peace of mind to businesses. It can turn a career-ending disaster into a moderate inconvenience. Many companies aren’t equipped to handle the technical and financial burden of a major cyber incident, forcing many to close their doors with no chance to recover. While not every company needs cyber insurance, weighing the cost against the value is essential.

Simply put, if your business heavily depends on digital technology for its day-to-day operations, and the costs of recovering from a cyberattack would be a significant burden, then cyber insurance is likely a wise choice. It offers more than just help in bouncing back; it provides a proactive approach to protect your business against financial disaster.

Does your business need an IT consultation or help with complying with your cyber insurance policy? Get in touch with us via our contact form or call us at: +1 (800) 297-8293

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